My Answer to All Financial Debates

“What should I do – invest or pay off my mortgage?”“What’s better – paying off debt or building up savings?”“Who’s sexier – you or Brittany Spears?”

My answer to these questions are always the same: Whichever excites you the most. (Except for the Britney Spears one, she wins all comparisons as I have a soft spot for her ;))

Yes there’s a financially “correct” answer to most of these which of course you have to factor in, but if you’re anything like me* you get a LOT more accomplished when you’re actually excited about what you’re working on vs looking at the numbers only. I can pay off debt like a mother when I’m in the mood, and alternatively I can turn around and save-save-save as well if my priorities and interests change over the months. But it has to motivate me enough to take action!

(That’s another important thing to keep in mind btw – life and priorities change ALL the time and there’s no shame in switching gears to adapt accordingly. Nothing is permanent in life and money!)

Here are two other reasons excitement works:

Gives you less of a chance of giving up! What are you more likely to do – stop doing something that’s exciting or stop doing something that’s forced?

No route is a bad one!! Saving money, paying off debt, investing, earning more – they all positively affect your net worth as long as you actually do one of them.

Of course there will be exceptions** and I’m sure some of you will bring them up in the comments, but generally speaking you can’t go wrong by choosing the path you’re most excited about. Even if you’re “losing money” in the process by not being the most efficient.

(Dave Ramsey’s Debt Snowball method is a perfect example of this – paying off the lowest balanced credit cards first to gain momentum vs the higher interest ones which will save you more in the end. But guess how much you pay off if you quit? None! And studies show time and time again that we’re flawed human beings and usually need the emotional push to keep us going.)

Now, in a perfect world? We’re excited AND it’s the financially “better” option! If it motivates you to kill off 18% credit cards instead of throwing money into a savings account earning 18 cents, then it’s a total win-win. You can plow through with all the motivation you’ve mustered while knowing it’s the more financially prudent decision. We should all be so lucky for the stars to align!

So to recap:

Think about which route most excites you and gets you to stick to it.

Don’t worry about picking the “wrong” answer because they’re all GREAT!**

Britney Spears is sexy.

Now to go throw my dollars around like those Simpsons gangsters… Always the right answer!

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* It’s okay to be emotional with money if you use it towards your advantage.

** There are some questions that “being excited” is of course a dumb decision-maker. For example, “Should I buy this Ferrari or pay off my $80,000 c/c balance?” or “Should I go to work today, or stay home and watch the complete 3rd season of House of Cards?” We all know which would be more fun, but we’re talking about smart financial debates here and not nonsense ones.

I absolutely agree with this. You have to have emotional pull or it’s not going to happen. When we were saving to travel long term I used to wake up an extra half hour on pay days to log on to internet banking and transfer our savings across. Then I’d update our geeky saving spreadsheet and text my husband the balance (he started work a lot earlier than I) and the % towards goal. There was a time when we were both being paid weekly so I got to do this joyous task twice a week! Oh man, those were happy times.

I tend to be a boring advocate of paying off one’s highest interest debt first, but, I’m also an advocate of working towards an exciting, concrete goal. So, if there’s a way to weave the two together, then I think you’ve got the perfect financial meld.

But I totally agree with you–you gotta find what interests you about your finances and what motivates you to stay on track. Also, spreadsheets! I love gaming out scenarios in spreadsheets–that seriously helps me buckle down and focus on saving. When I see the cold, hard numbers of what I *could* do, I’m more motivated to actually do it.

” It’s okay to be emotional with money if you use it towards your advantage.”

Love that. I think one of the my biggest strengths as a person is having a good balance between my emotional and rational mind. It allows me to assess objectively while using effective emotions to my advantage.

I am in one of those predicaments right now. The problem I have is to have the Mrs. invest more in her tax free savings account or her RRSPs. She is in a high tax bracket so it makes sense for her to put into the RRSP, but with 36k worth of room in her TFSA it would be nice to max it out to have money growing tax free and have access to it at any point. For me, it only makes sense to max out my TFSA first and then switch to an RRSP as my tax rate is much lower but for her I think financially it makes more sense to go RRSP.

We are being super emotional with our money right now! We were shocked when we added up our total loan amounts for student loans. Between husband and I we have $140k. We are doing the debt snowball for our two lowest loans to knock them out in the next year. Then we are tackling his Parent Plus Loan debt that we are paying for his parents. A- gets parent in laws out of our financial business as quickly as possible. B- see A, ain’t no one got time for that! Then we are going to jump onto our own federal loans.

Emotion with money is great, but you just have to be smart too. Sometimes you have to blow some cash, just to balance out all that mad crushing for savings.

Yup! I generally know what the “more mathematically correct” answer is, but money isn’t math. If it was, we’d all be rich. There’s a lot of emotions at play when it comes to finances, and if you’re not keeping 30% debt on a CC, or using payday loans etc, while throwing everything into retirement savings, then I’m cool with it :)

We’re in this mode now. Do we put extra payments towards the mortgage or do we increase 401k contributions. We’re doing a little of both. I just upped my 401k by another 1% after raises and we are putting leftover money towards the mortgage. We also have PMI for another ~8k (maybe a little more if they make us wait till 78% instead of 80%).

Caveat though, if the stock market tanks, I’ll most likely move all of our savings from our principal to 401k of myself and my wifes since there would be a huge sale!

I keep wondering if aggressively paying down my mortgage is stupid when it’s only at a 3.75% interest rate, and I could probably make more by investing that money… But it’s so addictive watching that balance drop and thinking about the freedom of not having a mortgage that I keep doing it because it excites me. It’s definitely emotional!

“But it’s so addictive watching that balance drop and thinking about the freedom of not having a mortgage that I keep doing it because it excites me. It’s definitely emotional!”

I am totally with you on this one. I was showing my wife the other night that if we could pay this one bill off we could put the extra $45 a month on the mortgage and the principal payment has now increased to the next hundredth dollar. I am totally obsessed at the moment.

We are in our five year of our mortgage, however, we only have a little over 22 years left on it and by simply paying a little extra each month has gotten us ahead. This is what keeps me going. Total excitement!!!

I literally just got an email asking my advice on this “for real” haha… Ie outside of the emotional aspect I spewed everywhere here :) I told her in that case to then focus on *GOALS*. If you want to grow your wealth more and get passive income, then investing it is the “right” way to go since odds are you’ll get a lot more money in the end that way than paying off a mortgage with low %. However if you want a free and clear house, then of course there’s only one way to get it – gotta pay off that mortgage!

So it’s a mixture of emotions and goals really, and again as long as they’re all positive routes you really can’t go wrong. So good job sticking to what is motivating you right now!

You certainly need to be doing something! That’s better then no action at all. You can take some bits and pieces from varies different methods and make it your own. Need to figure out what works best for you in your personal situation and keeps you moving towards the end goal.

I use to be passionate about paying off our mortgage early. My wife and I paid extra every month on our mortgage for about two years and then the excitement faded away.

After that, investing the extra money in dividend stocks was more exciting than using it to pay down our mortgage. Investing our money just seems a lot more exciting and motivating to us than paying down our mortgage.

That’s probably the best example of what happens in real life. And totally OK to do!! You can’t go wrong if you’re always working on the thing that’s driving you at the present time, ya know?

Reminds me of how much I loved and enjoyed candy as a kid… There was nothing I wanted more than to scarf down that juicy awesomeness :) These days I could care less though (for the most part) and so I partake in other things that make me happy now. Both excitements did the same thing, but we change over time and as long as we’re adapting we’ll always be happy in theory. And that’s a beautiful thing!

I have to say, once I realized we could retire early and not eat Ramen or be “broke” the rest of our lives if we did, it changed a lot. Our spending decreased, savings increased, and it didn’t seem like a forced “you have to do this to be financially prudent” sort of goal. It’s exciting to think I’ll get to have that much free time to spend with my kids during their younger years.
We’ve recently decided to lower our 401k contribution so it will just max out with our company match, because it’s not our limiting factor in retirement. The money before 60 is our hurdle, and now we can throw another $25k/year or so at it. Win, win!

At least interest rates on mortgages are now pretty low so it is easier to save what is probably your largest debt for last. The credit cards and car loans will almost always have a higher interest rate so it makes sense to pay them off quickly then settle in and attack the mortgage. Plus, at least in the U.S., mortgage interest is deductible from income taxes so it gives you that benefit that credit card interest does not.

Thank you so much for addressing this! This was one of my main struggles when I first started actually paying attention to where my money was going. Should I pay off my student loan, start saving for retirement or build an emergency fund? I’ve read tons of conflicting information and everyone has an opinion about what to do first and how to do it. You’re completely right when you advise to go the route that excites you the most. Initially, paying down my student loan aggressively was what excited me, but my priorities shifted when my boyfriend switched jobs and I decided to go into savings mode until I have a solid e-fund for us in case something goes wrong with our home while he’s in the midst of starting his own business. I love seeing that balance grow in my online savings account! In a few months, I’m excited to switch back to paying down my student loan. I’m way more successful and able to reach my money goals when I’m excited about the end game. Thanks for this thoughtful post!

I’m so glad!! And proud of you for not being afraid to switch it up when life and levels of joy changed :) You’ll hit the finish line a LOT faster keeping up the energy and motivation like that, so keep going over there! You’re on a roll!

So many people overlook the “personal” part in personal finance. At the end of the day, you have to do what makes the most sense for you and your situation. I tell people when budgeting to try out a budget plan they think makes the most sense for them, and then tweak it as you go.

When I first budgeted, I tracked every dollar. After a few months, I realized I was wasting my time tracking my mortgage payment because it is fixed every month. The variable spending – food, clothes, entertainment were what was getting my into trouble so I modified things. For someone else, tracking every penny might still make sense.

At the end of the day, if you are excited to do it, then that is your sign it probably won’t work out. This is the same reason why so many people fail with resolutions. They wait until the new year to make a change. I say screw that, strike while the iron is hot! If you want to start losing weight today, start today!

I love this article. I completely agree that if you’re not motivated and excited to do something, it won’t last. There is a ton of math behind every personal finance decision you make, but at the end of the day as long as you’re making progress and feeling good about it you’re on the right track.

Haha… I do the same with my money coaching clients. I’m always so eager to know what their employer matches and then what they’re contributing! Doubling your money on the spot is better than *any* investment you can do! And it’s guaranteed – crazy!!

I’m very glad that you wrote about this. I have had mental battles in my head about this for a few months now. The ‘logical’ plan of attack in my head would be to pay off my credit card debt with the majority of my savings account, but knowing myself I would probably be discouraged if I had to start my savings from roughly zero. But, as you mentioned, perhaps that will change when my savings account is a little larger and I can ‘afford’ to see some of it go.

Yeah the nice thing about savings is you can always use it anytime you wish to pay off debt or invest/etc. Where as once debt is paid off with it you can’t go and “get it back” unless you go into more debt, haha… and a plump savings certainly helps with that! :)

This couldn’t be more true. If had two debts of the same amount, but one had a higher interest rate, I’d still choose to pay down the one that excited me the most, first. It just so happens that it would always be the one with higher interest, though. lol That excites me more than the actual thing. My husband is just the opposite. We have interesting conversations. :)

There are ways to be ultra efficient with finances, but personal finance is “personal” for a reason. There are a lot of roads that lead to Rome, but the key is that you’re getting there. If you can’t stand the road you’re on and bail, then what’s the point?

Haha, Britney Spears *is* sexy and that’s my main take-away from this :) But also, you’re completely right on this. I’m struggling mightily with paying off the mortgage early or investing like a madman. The mortgage is a 15 year with 13 years left @ 3% so it clearly doesn’t make financial sense to pay off early. But it can be killed in maybe 3-4 years…and then we’ll be 100% debt free which is cray-cray (as my kids say) to think about.

Agreed, when I was choosing which student loan to pay off it had nothing to do with interest rates and balance it had to do with excitement(real hatred in this case) of paying off my private student loan because I disliked the bank so much, needless to say some real motivation and a quick payoff was had.

Starting my blog and tracking my debt is motivating me more. My debt page spreadsheet gives me a monthly report that helps me also plan future payments. I print out my monthly Student loan statements and keep them together on a clip board. When I flip through I can see the big change from 8 months ago to now. It makes it real and helped keep me motivated to pay the highest interest first which had the largest balance. Also Christina Aguilera is sexy.

That’s a damn good idea!! With both blogging and printing them out like that – nicely done, sir. I’m 100x better with my money from blogging about this stuff every week – it can’t help but sink in! Haha…

I have pretty strong views about investing and saving especially when the interest rates are low. But I can get on board with your answer. You gotta do what works for you. Often times emotions are more important than math calculations when it comes to finances.

Agreed! There is no reason to pursue something just because the numbers say you should, especially if you run a high risk of becoming un-interested and not following through when everything is said and done.

But I would urge everyone to play with the math…that is why spreadsheet exists. They are a playground for adults. You may find ways for the numbers to excite you :)

Okay, maybe that only works for the hardcore spreadsheet guys like myself.

Totally agree! I wrote about this a while ago but the method which we’re tackling our debt goes against every piece of financial advice we’ve ever heard but it works for us. We’re paying off a 0% loan before anything else because quite fankly it bothers us the most and will give the most satisfaction to pay off. As long as you’re moving in the right direction it doesn’t really matter.

5 years ago I only looked at the numbers. Now I’ve been brought over to the dark side of emotional financial decision making. We’re paying off our mortgage now instead of investing, gasp! I wouldn’t have believed it to be possible, but here we are. Emotions do play a role. Doing anything is better than nothing. And your priorities and risk levels change too.

My emotions also factor on the negative side, i.e., what scares me the most?

Am I more scared of downside risk with a small emergency fund, or am I more scared of losing a fair amount of earned interest over the years? Things like that.

I remember reading very recently about a study of people with damage in the part of the brain where emotions were generated. The summary was that they couldn’t make decisions. Seems like science supports your thesis!

It’s fascinating the little tricks we need to use on ourselves to get us to do things which are in our own long-term best interest! Focusing on what gets you going financially is a great idea. I just love investing and seeing those stocks grow, so that’s where I pour my energy. I can’t imagine every paying off my mortgage early as long as there are great investment opportunities to take advantage of first!

And is Brittany Spears really still sexy? I haven’t seen much of her for a long time….

Great point. Personally, I try to avoid emotions in my financial decisions. This goes for investing and also for consumption. Nevertheless, I try to balance a frugal living with costs for hobbies, activities with friends or travelling. I think a constant motivation on the way to financial indepence is needed. To start with, I would first pay off all liabilities, avoid new liabilities and then start to investing.

I like your answer to this and it’s what most people want to do anyway. I can show numbers and spreadsheets to clients all day long, but if they have something in their head (the thing that excites them) then it doesn’t matter what the numbers look like, they are going to do what they want to do anyway. And I am okay with this, as long as they stay motivated and avoid the Ferraris. :-)

I’m always a fan of “do both” as an answer to those “pay off my house or invest in a taxable account” or “go hard at my debt or increase my 401k” or “should I invest all at once or dollar cost average” type debates. I mean, yeah, there MIGHT be a right answer one way or the other if you really crunched the numbers hard….but why not split the extra money 50-50, and put half towards each goal? That way, you won’t completely regret it either way….

Yep, I’ve had to adjust our finances to my own emotional stuff. Including my decision once to carry a balance on our credit cards for a month (about $8 in interest) rather than the emotional stress of depleting our emergency fund. It didn’t make any sense, but it worked for me.

Even if you’re not excited by the financial options, you may be utterly in distress or freaked out. In those cases, ya gotta do what works for you to keep you sane and functioning. Or in my case, just functioning.

I think the big thing, is to do *something*. Ignoring an issue isn’t going to help. Even if you do something that is less than optimal, it is still something.

For us, the age-old pay down the mortgage vs. investing question is in play. Our 15-year mortgage has 13y left. Interest is 2.88. CRAZY LOW. It is really hard to justify sending extra to the principal, because if we had some situation where we needed the money, we’d need a HELOC to do it.

Our retirement contributions are maxed out. We’re sending a healthy sum to the kids’ 529s. We have a respectable cash cushion for emergencies, another vehicle some day, and the next 2 vacations (what?). So it’s like okay….let’s figure out what to do with this mortgage.

My husband and I this month decided to invest extra cash to a tax-advantaged muni bond fund at Vanguard. We’re hopeful the returns will be greater than 3%, and this way we can pay off the mortgage in a few lump sumps or maybe just a final one-time payment, or we can say forget it and let it grow.

Interesting…I just finished making this decision this last week. We were debating on a Refi from our 30 year to a 15 year (26.75 yrs remaining and a 4% interest rate to 15 years remaining and a 3.25% interest rate, discount points back which negated the refi costs).

There really are so many factors you could take into the calc of whether or not it’s a good investment that it makes my head spin…There’s Time value of money, tax deductions, interest paid, investment return if you invest the difference up front, investment return if you invest what would have been your mortgage payments after you’re done paying off the mortgage, etc. etc.

I ended up going along the lines of what J$ describes here…what made me feel best. When I thought about my future and what would be nicer: a larger lump of $$ to sit on or less cash outflow every month, I figured having less coming out would be better so I don’t feel burdened with payments each month. Not necissarily the better financial decision (still not sure which was better) but I’m feeling good with it :).

And that’s really all you can do :) If you wake up in a year feeling like you’d be happier switching course, you do it! (Of course some things can’t be undone, but you get the point. Act on the best path to happiness now, and adjust as time goes on… Who knows if we ever get it “right.” I’m sure billionaires kick themselves all the time for dumb moves – and they’re billionaires!! :))

We did refinance like 2 years ago from a 30 year. It was I thinke 4.5%? I can’t remember exactly. It was in the 4%s. But getting a 15-year under 3% was mega, and we were only 1 year into our 30 so it was really worth it for us. Also our refi only cost a few hundred dollars. It was amazing!

We do itemize our taxes and thanks to charitable contributions and other stuff, we were way above the standard deduction. It’s important to look at what your deductions are above that $12,400 mark for married filed jointly. That helps to get a better picture of the deductible value of your mortgage and points.

So for example, if your deductions add up to $14,400, then itemizing adds an extra $2k of deductible income. In the 25% tax bracket that saves you $500. I think. My math is a bit simplified, but it’s just an example.

We loved this article so much we are going to do a podcast about it! I think people make dumb decisions because they are bored, instead they need to get excited about their life and finacial situation again. That is where the magic really happens!

What gets me all fired up (in a good way, hahah) is when I do my own little personal financial models that show I could (early?) retire at X age if I “just” throw $XXX to $XXXX/month in the retirement bucket for the next X years. I LOVE tweaking the numbers. I have five best-case scenario ages, and it’s SO motivating to see how the numbers change. God! Retirement planning geek over here fo sho!!! :) Go J$ go…

Hey J, I agree that it depends on what motivates you. I personally HATE debt, even though, yes I do currently have some. It makes me feel imprisoned, and I don’t like that feeling. So I work fervently to eliminate it, sometimes to my detriment. At the same time, I’m a big advocate of investing and creating passive income that will help pay the debt, instead of doing it all myself. In other words, running circles around my debt as I call it – I’m working on that!

We’re barely keeping our heads above water Everyday! We’re both Disabled, no money for anything and a favorite cat that needs to see a Vet asap! I’ve tried everywhere possibly that I have been told about, but they are more concerned about their money upfront than helping me, help her! We made sure all our bills were paid this month but sure didn’t see This coming! Money……what’s that???

Sorry to hear Mrs. Patrica :( I’m glad you’re on finance blogs though checking stuff out! Please don’t give up hope – there’s gotta be a way to get back on track over there. I’ll keep you in my thoughts.

So after reading this article I’ve concluded that I should invest in Brittany Spears memorabilia – a solid investment that excites all of us. :) going through your list of 2015 fav articles and enjoying them! It’s a bummer that what gains the most page views due to Google or a catchy title isn’t always the best material. Thanks for sharing and for your motivation!

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I, J. Money, only claim the thoughts from my head. I am not a banker, CPA, money manager or anything else of that sort. Please seek a professional for any "real" advice. More info: privacy & disclosure page